Updated: May 11, 2019
Credit from Eze Vidra
Direct-To-Consumer, or DTC in short, are products or services that are financed, designed, produced, marketed, distributed and sold by the same company. They bypass the middleman and connect directly to consumers. Others call them Digitally-Native Vertically-Integrated brands (DNVB).
The appeal is simple — avoiding the retail markup enables DTC startups to offer a combination of better design, quality, service, and lower prices. Examples are plenty, but perhaps the most iconic ones are DTC eyeglass company Warby Parker, Dollar Shave Club or Casper mattresses. Many of them call themselves the “Uber of X” or the “Warby Parker for Y”. From fashion to food, new DTC startups are popping up on a daily basis.
It’s never been easier to start…
Compared to a few years ago, it’s never been easier to start a direct to consumer company. Consider these factors:
Reach — Google, Facebook and Instagram enable any brand to reach customers at scale and relatively low costs
Infrastructure — so much has been said about the ability to scale with cloud platforms like AWS or Google Cloud, but the infrastructure improvements go beyond just servers and computing — think about Stripe for simple payments, Shopify as a one-stop-shop for running an e-commerce business, etc.
Rapid prototyping — technology and active commercial channels with China enable entrepreneurs in the west to source and prototype their products early
Crowdfunding — Indiegogo or Kickstarter provide the launch platforms to generate early demand
These advantages are there for every upstart and incumbent, and the success of the few has attracted many wannabes to the DTC space.
Strategies for Direct to Consumer Brands
In an excellent piece, CB Insights did a deep dive on some of top strategies for DTC brands. As DTC brands struggle to compete solely on price, they have to innovate in the whole experience of shopping. It’s worth reading the whole piece, but here are some takeaways:
Design– Simple, back to basics design. While the big brands over design, DTC brands celebrate simplicity -“Allbirds built its brand around the design of the shoe itself and its nonbranding. The centerpiece of the product is the shape, look, and feel of the shoe”
How they launch– Social media first companies that know how to successfully leverage video. Chances are, you’ve seen the Dollar Shave Club video when it went viral. Focus is on authenticity — of the brand, of the people.
Customer experience — DTC brands “cater to the desire to avoid choosing, and the desire for something that is just fine”. In the case of Casper mattresses, many customer reviews show that the mattress is ‘ok’ but the experience of buying and receiving it is much better than the alternative
How they market themselves — have a crystal-clear brand positioning that resonates with consumers. Most of the D2C companies focus on selling only a handful of different products, and many started out with just one. Less is more.
The Retailer Perspective
Traditional retailers have branded the DTC products as ‘Piranhas’. As consulting company AT Kearney describes them:
Smaller companies that are growing rapidly in large categories by taking small bites out of the market share of leading consumer goods firms.
One reason why direct to consumer brands are on the rise is that we are at a global low point of consumer confidence in large corporates.
“In the past, niche brands that started from scratch and were not owned by large corporations succeeded either because they were much cheaper (for example, private labels) or because they were competing in a space where consumers valued exclusivity and scarcity, such as luxury items. Today, piranhas are succeeding in mass markets across geographies and categories as they are winning on consumer confidence.”
In its analysis, “Swimming with the Piranhas and Reinventing the Mass Consumer Model”, AT Kearney breaks down the playbook of DTC brands:
On average, they spend two to four years creating and fine-tuning their business model and brand positioning
Then gradually rolling out their business model through a carefully orchestrated set of activities (see figure 2). Instead of pursuing broad distribution, they focus on limited or controlled distribution channels such as their own boutiques or website, and they often use temporary point-of-sale venues such as pop-up shops or in-store counters.
Once the product positioning is proven and the brand established, piranhas accelerate the rollout in their domestic markets, usually over the course of two to three years. They establish larger points of sale in more visible cities, strike national and often exclusive distribution deals, and progressively expand their scope while remaining